There are four simple steps to best manage invoices. Most organizations do not have the tools, nor procedures to ensure the steps are followed to maximize the value of the contract and eliminate late penalties. Organizations must take the following steps to maximize the value of their contracts, remain compliant, and eliminate late fees:
1. Monitor Invoices and Receipts
Many organizations lose track of their invoices and do not realize until they receive a late fee on the following invoice. While we would all like to have contracts that do not have penalties, they are needed to ensure compliance by both parties. In addition, invoices can be sent to the wrong internal person for processing. Do you have a process in place to handle mis-routed invoices? Make sure that everyone in the organization knows what to do when an invoice shows up on their desk that does not belong there. Organizations should also have an electronic schedule of all invoices – if they are not received or paid on the scheduled date, alerts should be sent to responsible parties.
2. Verify Invoice to Contract Accuracy
This step may seem intuitive, but often discrepancies are not clear. The majority of organizations today do not have adequate staffing and time to devote to the proper validation of monthly invoices. And when verification is performed, most are only checking the total invoice amount and individual line items. What if one item is priced lower, but another item is priced higher – would your processes catch this change?
Often, recurring invoices are pre-approved for payment. If you are approved to buy between 100 and 150 widgets per month at $100 per widget, many organizations will automatically pay any invoice between $10,000 and $15,000. This month you used 110 widgets, but you were billed $110 per widget for a total amount of $12,100. This amount would go through accounting and be paid, yet you just paid $1,100 more than your agreement. This happens often, and companies mistakenly pay more than their negotiated price.
3. Track Invoice Approval
While this may sound simple, many organizations have a tiered approval process depending on the size of the invoice, which may even involve Executive or Board approvals. Adding to the complexity of Board approval, many Boards only meet quarterly.
Tracking multi-tiered approval processing can be daunting. Failure to complete all steps can delay payment and result in penalties. An accurate tracking process needs to be in place to coordinate approvals. Manual processes are time consuming and error-prone, so an automatic electronic process must be in place to ensure efficiency. In addition, obtaining Board approvals between meetings can be a challenge. Fortunately, digital processes can meet legal requirements. If you don’t have a digital procedure for Board approval, one should be established before the need becomes critical.
4. Manage Disputes
While paying invoices is an obvious step, many organizations overlook the invoice dispute process. If the amount billed does not match the contract, a formal dispute needs to be submitted to the supplier. If a formal dispute is not initiated, suppliers will still charge late fees even with partial payments. Does your organization have a formal dispute policy? If not, one should be written, along with the appropriate approvals of the policy. If a formal policy exists, the supplier can be directed to the policy.
Excellent invoice management programs require extensive documentation, clear procedures, and training of staff. Automated tools can help with tracking and documenting procedures. Most organizations do not have the procedures in place to ensure contract to invoice compliance. Review your programs today and see if they fall short of the steps above. If you need help or would like tools to assist in your programs, ProcureSafe can provide both to develop cost-effective plans.